(Bloomberg) — The global IPO market is showing signs of life as a stock market rebound has encouraged companies to test investor appetites for new listings, particularly in Asia. But a full recovery seems a long way off.
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Global IPOs were priced at around $25 billion in March and April, nearly double the first two months of the year when listings virtually ground to a halt, according to data compiled by Bloomberg.
Issuers from Hong Kong to Milan saw an opportunity in the drop in market volatility, analysts said. Activity was particularly brisk in Asia, where nearly 80% of sales of new shares were on regional exchanges in April. Prices in Europe also recovered. But fears of a recession have deterred US issuers and slowed a full recovery. Transaction sizes have been smaller on average, and money raised so far this year is 51% down on the same period last year.
“We are seeing early green shoots of activity from companies resuming suspended litigation, but there is still a level of uncertainty in the market,” said Jason Manketo, global co-head of law firm Linklaters’ equities practice. “The buy-side is keen to see results for a couple of quarters before committing to an IPO. That means the potential pipeline has shifted from some 2023 deals to 2024.”
Asia leads
Looking more closely at the data, Asia is practically the busiest area for deals in the world right now. But in a key change from 2022 – when the vast majority of large-volume deals were concentrated in mainland China – this year’s issuance is coming from a larger part of Asia.
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Indonesia was the brightest spot with two nickel producers emerging on their debut. Rakuten Bank Ltd. jumped after raising 83.3 billion yen ($623 million) in Japan’s biggest IPO since 2018 – but the bang came after the original price range was trimmed. And KKR & Co.-backed Chinese liquor company ZJLD Group Inc. on Thursday set Hong Kong’s biggest bid for 2023.
“The IPO market is coming back gradually and slowly. It’s not 100% back yet, but there are signs of life and renewed vigor,” said James Wang, co-head of equity capital markets at Goldman Sachs Group Inc. in Asia ex-Japan.
Europe awakens
The European IPO market is dying, with activity in 2023 down about 12% from the same period last year as Russia’s invasion of Ukraine paralyzed listings.
Poor IPO yields have been a major deterrent to investors. Portfolio managers have fought hard on valuations, refusing to pay top dollar for new, unproven companies. Also, the sudden collapse of Credit Suisse Group AG, which sparked a global market crisis last month, increased investors’ concerns about interest rates and inflation and further threw up plans for the listing.
But there were signs of the darkness brightening. Most notably, Lottomatica SpA, the Italian gaming company backed by Apollo Global Management Inc., opened the books for a €600 million ($657 million) IPO last week, becoming the third major company to float the IPO this year opened up European stock exchanges. Additionally, German web hosting company Ionos SE and electric motor components maker EuroGroup Laminations SpA have both managed to raise more than $400 million in the region, despite both stocks struggling after their debuts.
US falling behind
Nevertheless, prospects for IPOs in the US remain difficult. Just $4.1 billion was raised this year for companies listed on US exchanges, with just three – Nextracker Inc., Atlas Energy Solutions Inc. and Enlight Renewable Energy Ltd. – account for one third of this amount.
In fact, outside of this cluster and a dozen SPACs debuting this year, the vast majority of new listings would qualify as penny stocks.
“We’re still in an uncertain world, and uncertainty is the worst thing about new issuance,” said Greg Martin, co-founder of Rainmaker Securities, which facilitates secondary transactions for private companies.
Signs are mounting that the US may be headed for recession and the Federal Reserve’s path on interest rates remains unclear.
“How do you value a business when you don’t know what the cost of capital really should be on a forward-looking basis,” said Patrick Galley, CEO and CIO of RiverNorth Capital Management. “Some clarity about interest rates is key.”
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